Methods of Inventory Valuation - Material Cost, Cost Accounting Video Lecture | Cost Accounting - B Com

methods of inventory valuation inventory
is purchased in many batches in several
Lots today we may purchase a batch at
rupees hundred a week later we may
purchase it at 105 and a week after that
at 107 the question arises that whenever
we issue these materials to production
or we sell these items what is the value
what is the cost of these issues a cost
of these sales would we take 100 would
be day 105 or would we take hundred and
seven normally or broadly we can say
there are certain items of inventory
which are absolutely not interchangeable
they are bought for a specific purpose
and can be used only for that specific
purpose or that specific job the other
kinds of inventory are interchangeable
each batch is more or less similar and
can be used for any of the jobs which
are being done in the factory so let us
come to the inventory which is not
interchangeable suppose a factory makes
shirts it so happens that the factory
has got a special father where the
shirts
require some gold-plated buttons so when
we buy buttons there is one special
batch of buttons which come in
which are gold-plated this is specific
and to be used only for that specific
job such inventory is valued exactly at
the cost at which we purchased and this
is called specific identification method
this means that if we have a batch of
buttons which came in four hundred
another batch which came in 405 a third
batch which comes in four hundred and
seven and this particular batch which is
coming for one thousand and five while
inventory is issued in the ordinary
course of business for the manufacture
of shirts when the particular lot of the
special customer is taken up the batch
of gold plated buttons would be kept
separately and would be issued only to
this job at the price of one thousand
and five it cannot be changed or mixed
or interchange with the other batches of
buttons ideally it would be best if we
could value all inventories that exactly
the specific cost at which we work
however that is not very practical it is
inconvenient and that is why we have
other methods of valuing inventory four
kinds of inventories which are
interchangeable
broadly these have been divided into
historical cost methods and non
historical customers we will first cover
FIFO and leave for first-in first-out
lost in first out and then the average
price method and weighted average price
we will then move on to standard cost
and adjusted selling price